Ship Orders Crash as Coronavirus Takes a Toll on Seaborne Trade
Date: Monday, April 27, 2020
Source: The Wall Street Journal
A new report says shipbuilding investment in the first quarter was down 71% to the lowest in more than a decade
The economic fallout from coronavirus restrictions helped cut investment in shipbuilding to its lowest level in 11 years in the first quarter, with work at Asian shipyards nearly halted and owners holding back on orders as global demand for goods nosedived.
“Contracting activity was extremely limited in the first quarter of 2020, with the economic impact of the Covid-19 outbreak negatively affecting investor sentiment,” shipbroker Clarkson PLC said Monday in its monthly World Shipyard Monitor report.
Clarkson said 100 vessels of all types were ordered in the first three months of 2020 at $5.5 billion, a 71% decline from last year’s first quarter and the lowest total since the second quarter of 2009. Chinese yards got 55 orders in the quarter and South Korean yards got 13 orders, representing falls of 50% and 81%, respectively.
The firm expects orders to keep sliding as a global downturn in trade deepens, and that the number of overall orders will decline by 26% this year. “The continued escalation of the coronavirus outbreak is likely to have a severe impact on newbuild order potential in 2020,” Clarkson said.
Clarkson said seaborne trade, which stands at around 12 billion metric tons, will contract by 600 million metric tons this year, the biggest fall in more than 35 years. The firm forecasts that overall trade of goods moved on ships will shrink 5.1% in 2020 from last year, compared with a 4.1% annual decline during the 2008-09 financial crisis.
The falling orders affect every type of ship, from container vessels that move the world’s manufactured goods to high-margin natural-gas carriers where South Korean and Chinese yards had pinned their hopes for growth this year.
Orders for dry-bulk carriers and tankers also are drying up even though China is resuming commodity imports and energy traders are booking tankers to store oil on the back of the crude-price collapse.
The trade lapse will directly hit the Korean and Chinese yards that control around half of the global shipbuilding capacity, according to marine data provider VesselsValue.
South Korea’s Hyundai Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co. are merging, and so are China Shipbuilding Industry Corp. and China State Shipbuilding Corp., combinations undertaken to help rationalize operations and cut costs amid declining orders over the past three years.
The yards were making more space to build liquefied natural gas carriers, which cost around $180 million apiece, about three times more than other types of ships, and generate profit margins that are at least twice as high as other ships.
“Then the virus hit and the bottom fell off,” said a senior executive at the China Association of the National Shipbuilding Industry, China’s state-run yard trade body. “It’s bad times, so we have to lure in orders. Depending on the customer and the type of ships, Chinese yards will be offering up to a 20% discount on new orders.”
The LNG market was surging before the coronavirus outbreak, mainly on demand from China and India, which are turning to gas rather than coal for power generation and heating.
Clarkson said the global order book for LNG carriers in the first quarter stood at 2,915 vessels, the lowest tally since 2004, when the natural-gas market was a fraction of what it is now.
The broker said travel restrictions also are delaying orders, as carrier executives are unable to meet with shipyard engineers and planners for the detailed work that goes into planning vessel specifications.“We got a bulker and a small boxship on order which are already a month late and we can’t send our people to China to check on the progress of work,” said an Indonesian owner, who requested anonymity. “How can you buy a ship when you can’t be at the yard to make sure it’s being put together properly?”